Satellite radio firms to pay $19.7 million for rules violation

WASHINGTON  Approval of a merger of the nation's only two satellite radio companies was imminent Thursday after the pair agreed to pay $19.7 million to settle charges they violated federal rules.

Sirius Satellite Radio Inc.'s proposed $3.6 billion buyout of rival XM Satellite Radio Holdings Inc. has been before the Federal Communications Commission for 16 months.

The five-member commission is deadlocked at 2-2, but Republican Deborah Taylor Tate was expected to cast the deciding vote approving the deal once a consent decree outlining the enforcement action is circulated for a vote.

"This was an issue that Commissioner Tate thought was important for us to deal with prior to her supporting the merger," FCC Chairman Kevin Martin said Thursday. "I think that this was a significant issue that we can take off the table that I think will allow us to move forward soon on finishing up the merger."

Tate had apparently sought a fine of $8 million, according to FCC officials who asked not to be named because the deal was not yet final.

Martin said the agency reached an agreement late Wednesday night where XM will pay $17.5 million and Sirius will pay $2.2 million to resolve interference complaints and violations related to land-based signal repeaters operated by the companies.

Martin said XM's penalty was greater because the company's offense was more egregious. He said that XM had operated more than 300 repeaters that were in violation of FCC rules.

"And even more significantly," Martin said, "XM had continued to operate their repeaters without authority when they were in violation."

The agency was free to pursue the enforcement action against the companies outside of the merger process, but Tate apparently wanted the matter settled before approval. Tate has not responded to requests for comment.

The Justice Department approved the deal in March without conditions, saying the companies don't really compete because customers must buy equipment that is exclusive to either XM or Sirius, and subscribers rarely switch providers.

DOJ also agreed with the companies' argument that they compete with other forms of audio entertainment, including digital radio, Internet-based radio stations and even devices like Apple Inc.'s iPod.

FCC approval faced a steeper climb because the companies were prohibited from combining under terms of their licenses. The agency struggled to come up with a way to show that allowing a satellite radio monopoly was in the public interest.

The companies voluntarily agreed to a set of conditions, including a three-year price cap and an 8 percent set-aside of "full-time audio channels" for public interest and minority programming. They will also adopt an "open radio" standard that may lead to a greater variety of features in radios and greater competition among manufacturers.

Sirius and XM also have promised to include a limited "a la carte" offering that would be available within three months of the close of the deal and allow listeners to pay only for the channels they want to receive.

The vote on the buyout will apparently be split along party lines. Democratic commissioners Michael Copps and Jonathan Adelstein have both voted against the merger while Martin and fellow Republican commissioner Robert McDowell have voted in favor.

Adelstein had sought further concessions from the company but withdrew his offer on Wednesday after it failed to draw support.

The two companies have a combined subscriber base of more than 18 million, according to the most recent figures. XM is based in Washington DC while Sirius is in New York City.

Under the buyout, XM shareholders will receive 4.6 shares of Sirius stock for every share of XM stock. Shares of Sirius stock fell 26 cents or nearly 10 percent Thursday, dropping the value of the deal to $3.6 billion.